RELATED COMPANIES

x

Loading data...

ChartsValuation & Peer ComparisonCommunity Buzz

Close ✕

Everything seemed to be in place. In June 2010, Kalanithi Maran had sewn up a Rs 900-crore deal with Bhupendra 'Bhulo' Kansagara, the non-resident Indian investor, and distressed assets buyout specialist Wilbur L Ross, to buy SpiceJet — the low-cost airline that created a flutter in the sector this month by flying back into profits and by offering a million tickets at basement prices.

Maran, promoter of the Sun Group and a tough-as-nails negotiator, had wrested the airline at a discount to market price. Yet, he felt something amiss: a CEO of his choice to lead the airline. Kansagara, one of the sellers and keen to cut the deal, took the onus on himself to find the Chennai-based tycoon a CEO, and landed Neil Raymond Mills.

In an interaction with ET about a month ago, Mills spoke about his arrival at SpiceJet. "Kansagara, phoned me out of the blue on my mobile in Dubai," recounted the 41-year-old South African.

"Neil, you don't know me. We've never met, but can I buy you lunch on Saturday?" They met at a Dubai hotel. Within two months, Mills had packed his bags and moved to India with his wife and two daughters.

Pretty much the hands and face of SpiceJet since, Mills has helped SpiceJet weather headwinds and put it in a good place to capitalise on a favourable drift. And he's done that by, occasionally, being a contrarian in aircraft choice, route selection and fare strategy.

"There were three things about Mills that separated him from the rest," Londonbased Kansagara told ET during a visit to India last week.

"First, his low-cost airline business experience, which was impressive. Second, Mills is a numbers man and has a solid financial background. The third attribute is that Mills is a hands-on guy." Within 10 days of that meeting, Mills was introduced to Maran. "After an interaction with Mills, Maran was convinced," says Kansagara.

"I thought, wow, I'll get to be a CEO before I was 40," adds Mills, in part jest, on why he took up the offer, just 18 months after he joined as CFO in FlyDubai, an airline he helped build from ground up.

The Rs 2,013 Ticket

Earlier this month, Mills, in his signature contrarian style, stunned the market by offering from January 11-13 one million domestic tickets at Rs 2,013 each for flights between February 1 and April 30 — the 'lean season' in the travel business.

The ensuing stampede of value-conscious Indian fliers saw the airline rake in Rs 160 crore, or about 10% of its seats for the period, a server crash notwithstanding. It left the aviation sector seething as another fare war could see the sector, bereft of the grounded airline Kingfisher, squander the pricing muscle it had acquired, and needed, to claw back to profits.

At Rs 2,013 a ticket, SpiceJet was charging 54% less than the Rs 4,412 it managed to make from every ticket in the October to December quarter, when it posted its highest-ever profit of Rs 102 crore, on revenues of Rs 1,602 crore.

A former airline CEO, who did not want to be identified, feels the move may backfire on SpiceJet. "Other airlines are dropping fares. And when SpiceJet would want to increase fares, other airlines will lower fares," he says.

Jasdeep Walia, analyst, Kotak Institutional Equities Research, feels otherwise. "The scheme had only a three-day booking window, which has not harmed pricing in the overall market."

Saying he did what was best for the airline and fliers, Mills, a chartered accountant, dismisses concerns that SpiceJet was retreating to the Air Deccan days of fares of Re 1, which set the price line and left the sector bleeding.

"What we are doing is not what Deccan did," says Mills. "Deccan sold all seats, from the first to the last, at Re 1. We are selling a few seats, about 25% of our inventory that would have remained unused due to the seasonal drop in demand."

Smaller Planes

Mills, a self-confessed low-cost carrier loyalist, claims to have read every book on low-cost carriers, including 'Simply Fly' by Captain GR Gopinath, who birthed Air Deccan, India's first low-cost airline.

Yet, he overruled the low-cost manual in a decision that has turned out to be a differentiator in the context of profitability, something even rivals acknowledge, and critical to SpiceJet's turnaround.

Even as he waited to join SpiceJet, Mills was involved in the airline's strategic move to acquire Q-400s — the narrow-bodied smaller planes built by Canadian company Bombardier.

It was a courageous move, as two different types of aircraft are frowned upon in the low-cost carrier manual. It is difficult to maintain two types of aircraft in the hangar.

It means hiring two sets of pilots and engineers, as one might not necessarily be conversant with the other, and stocking two sets of spares. SpiceJet booked 30 Q-400s — assured purchase of 15 planes and the option to pick up another 15 — to complement its Boeing 737 fleet. Its plan was to fly the 737, which has 179-212 seats, on metro and overseas routes, and the 78-seater Q-400 on regional routes.

Narrow-bodied aircraft of Boeing and Airbus can use 36 runways in India. The Q-400 could use 96. It served as a force multiplier that fed SpiceJet's trunk routes by ferrying passengers from tier-II towns.

"SpiceJet is expected to see stronger passenger growth on the back of its regional connectivity and the start of more international flights in the near term," Praveen Sahay of B&K Securities said in a recent report.

Quicker Turnaround

Being lighter, Q-400s are also faster than other narrow-bodied planes, and gave SpiceJet the option to fly an additional route every day.

Mills, who has spent 16 years in the airline sector, built on that: he challenged the SpiceJet staff to shave off one-third from the 30 minutes they took to prepare a landed plane for its next flight. His staff told him it couldn't be done in India, given the infrastructure and the elaborate security checks. Mills was convinced it could be done.

"I listened to my team for a couple of weeks complaining that such short turnarounds don't work in India," he says. Mills, who mostly goes with his team, put his foot down on this one. "I told them, 'I've heard enough of this and I haven't heard a valid reason why a turnaround can't be done in 20 minutes'."

Today, SpiceJet operates 100 flights a day, and most are 20-minute turnarounds. Theoretically, a savings of 10 minutes per flight means 1,000 minutes, or 16 hours, of flying time per day. Seen another way, that's two more aircraft in its fleet.

"He (Mills) was ready to take the plunge in a high-growth market like India," says Kansagara. "He was aware of the market dynamics and the challenges. The whole opportunity to head an airline in this market was the task he had made up his mind for."

Buy In A Seller's Market

Back in 1997, Mills moved from Johannesburg, South Africa, to the UK with his wife and without a job. He joined UK-based low-cost carrier easyJet in the finance department. His 12-year stint there took him to many parts of the airline, ending up as procurement director and reporting to the CEO. At the time of his joining, easyJet had just four aircraft and, in the words of Mills, was in "total shambles".

In less than a year, he was given the responsibility to implement a new IT system. He set up a new reporting system there, and then spent two-and-a-half years in operations, the lifeline of an airline.

Mills was a contract manager, signing aircraft leases, when easyJet's fleet grew from 4 to 174. It signed a $5-billion deal to buy Airbus aircraft and bought a British Airways subsidiary, GoFly Airways, in 2002. Mills, who managed easyJet's insurance portfolio for 10 years, says the airline used to take delivery of an aircraft every 12 days.

"In this industry, the challenge is constant," says Mills, adding that his wife calls him an "adrenaline junkie". "We keep jumping from one crisis to another. There's no other industry that moves that quickly."

On September 11, 2001, the airline industry plunged into crisis when hijackers rammed two planes into the World Trade Towers in New York, bringing them down and killing about 3,000 people.

As the fear of flying grounded the industry, Mills the contrarian smelled value. The next day, Mills recalls, aircraft leases had slumped to 40% of their original value.

A few weeks later, it was 30%, and easyJet swooped in. "We leased airplanes for pennies," says Mills. The airline also renegotiated with airports to lower airport fees, even as it halved its own airfares.

Fly Difficult Routes

After easyJet, Mills joined FlyDubai, an infant airline, where he was involved in finance, HR and IT functions. One of his contrarian moves there was to launch a flight from Dubai to strife-torn Kabul. He did the same at SpiceJet, launching a Delhi-Kabul flight.

Mills points out that low-cost carriers "beat each other to death" by flying popular routes such as Delhi-Singapore or Delhi-Kathmandu, terming the latter "charity flying" for its low profitability. The Kathmandu airport charges $2,000 to turn an aircraft around, which is higher than state-of-the-art Dubai.

Disagreeing that the better financial performance of airlines is due to the grounding of Kingfisher, Mills says Indigo and SpiceJet made up for that loss by adding more flights. "We (SpiceJet) will continue to stabilise and grow the network, and hopefully make more money in the times to come," he adds.

Promoter Maran only looks at broad strategy, and has left the day-to-day running of the company to Mills, and Maran's close confidante S Natrajhen, who was recently re-designated from executive director to managing director.

"It works pretty well and we have reasonable freedom to run the company," Mills says of his relationship with Maran. "If I need any clear direction, I need to call if it is urgent, or just drop an e-mail. When you talk to promoters, care should be taken that you don't waste their time.

They are happy to give you their 10 minutes." He does wish the rules set by the government of India would give him more than three months on his visa, a predicament shared by expat pilots. Because of this rule, Mills and his family have to undergo a police verification every quarter.

In Dubai, it was a three-year visa, he says. "It is not the way to make people feel welcome," rues Mills. When he joined SpiceJet, he set a target of five years to turn it around. Nearing the halfway mark, he seems to be on course.